The MERS outbreak could have a big impact on Korea's economy

The negative media coverage surrounding the Middle East
Respiratory Syndrome (MERS) outbreak could hurt the already weak
South Korean economy.

MERS hit South Korea in late May. Since then, around 64 cases of
infection have been confirmed.
Six have died and around 2,000 people are quarantined.

Assuming the situation will be contained in one month, "we
expect retail sales to drop 10% and restaurant sales decline 15%
in the current month, but tourism would fall 20% for two months
because it will take longer for tourists to come back. That could
cut 2Q-3Q growth by about 0.5% and annual GDP by 0.15%," writes
Morgan Stanley's Sharon Lam.

And if the outbreak gets out of control,
"the
Korean economy would tumble into recession. ... That would slash
2Q-3Q GDP growth by 3.0% and annual GDP by 0.8%."

However, things could get even worse if there's
long-lasting negative media coverage of the outbreak.

"We are concerned that negative news headlines could remain
for a while, even if the disease dies down, an that could take a
toll on consumer sentiment," writes Lam.

She likens the current MERS outbreak to last year's Sewol Ferry
tragedy, where
304 people (mostly high school students) were killed after
the boat sank. For months after, negative
media coverage blamed the government for the tragedy, which
really hurt consumer sentiment.

“If consumer
sentiment is hurt substantially again, we are worried that it
could kill the recovery momentum and that the economy could get
into a vicious downward cycle," writes Lam.